Acquiring a business through a merger or sale could be a major milestone for any business. However, it could also create the possibility of serious issues. Financial losses, legal liabilities, and reputational damage are all possible. This is why it is crucial that businesses make the effort to evaluate any new business venture with thorough due diligence.
Due diligence is a process that identifies risk factors. These risks are based on the nature and type of the business. For instance the bank or financial institution may require a greater amount of due diligence than an online store or retail company. A business with a global presence may require a review of country-specific laws that affect its operations more than an individual content domestic customer.
Companies should be aware the fact that customers may be included on sanction lists. This is an essential examination that must be carried out before any contract is entered into, especially if the customer has been found guilty of engaging in illegal acts such as bribery and fraud.
Other factors to be considered during the due diligence process include the reliance on any specific individuals or entities. A company’s dependence on its owner-managers or key employees could be a red light that could lead unexpected losses if an employee is suddenly dismissed from the company. The amount of shares held by the senior management team is also something to be considered. A high percentage of ownership is an indication of good things, whereas any low percentage is a sign of danger.